Karora and Kalamazoo Resources to spin-out lithium assets into new exploration company

Karora Resources (TSX: KRR) has confirmed it will vend its Higginsville lithium project in Western Australia into a new publicly-listed exploration company known as Kali Metals, via a proposed demerger and concurrent initial public offering.

The company has entered into a shareholders agreement with Kalamazoo Resources (ASX: KZR), which will see Kalamazoo also spin out its Australian lithium assets.

At listing, Kali’s portfolio will comprise Kalamazoo’s Marble Bar and DOM’s Hill lithium projects (where exploration is currently being undertaken in joint venture with Chilean lithium producer Sociedad Química y Minera de Chile SA); and lithium mineral rights across a significant portion of Karora’s Higginsville gold tenement package in the Eastern Yilgarn region.

Kali will also hold lithium mineral rights across 2027sqkm of the Jingellic and Tallangatta projects located in the Lachlan Fold Belt of New South Wales and Victoria.

The new company will be led by an experienced management team, with Karora managing director Graeme Sloan at the helm and Kalamazoo chief executive officer Luke Reinehr as non-executive chairman.

Focus on gold

Mr Reinehr said the spin-out would enable Kalamazoo to focus attention on its Pilbara gold assets, particularly at the Ashburton project which hosts a resource of 16.2 million tonnes at 2.8 grams per tonne gold for 1.44 million ounces comprising 9.7Mt at 2.9g/t gold indicated and 6.5Mt at 2.5g/t gold inferred.

“We have contemplated spinning out our Pilbara and Lachlan Fold Belt lithium projects for quite some time now… when the opportunity arose to join with Karora into what we consider will be a significant critical minerals exploration company in Australia, the rationale was compelling,” he said.

“Kali will be a well-funded ASX-listed lithium explorer with an unrivalled portfolio of assets located in the hottest hard-rock lithium regions in Australia and globally.”

IPO process

Kali expects to raise up to $12 million at IPO via a demerger and concurrent listing to fund exploration and drilling of the combined Australian lithium portfolio.

The IPO will provide Kalamazoo shareholders with an initial 25% in-specie distribution of Kali shares and a priority entitlement to subscribe for Kali shares, subject to final shareholder and regulatory approvals.

At listing, Kalamazoo will own 55% of the company, while Karora will hold the remaining 45%.

Kali is expected to list on the Australian Stock Exchange in September using the ticker code KM1.

Exploration joint venture

The Marble Bar and DOM’s Hill lithium projects are part of an exploration joint venture between Kalamazoo and SQM.

Kalamazoo has, with SQM’s consent, assigned its interest in the joint venture to Kali.

SQM has been granted the right to earn an initial 30% interest (up to a maximum 70%) in all mineral rights at Marble Bar and DOM’s Hill by sole funding $12 million in exploration over the next four years.

SQM is one of the world’s leading lithium producers with its main asset in Australia being a 50% joint venture interest in the Mt Holland lithium project.

Early mover plays

The Jingellic and Tallangatta lithium projects are considered to be “early mover” plays, covering geology which is highly-prospective for LCT (lithium-caesium-tantalum) pegmatites as well as hard-rock tin mineralisation.

Both projects host highly-fractionated S-type granites and related pegmatite dykes associated with numerous alluvial and hard rock tin-tungsten and tantalum occurrences and mine workings.

These characteristics are all considered to be critical and favourable features of the LCT-pegmatite exploration model.

Additionally, the projects lie within the extension of the same Lachlan Fold Belt geology which hosts known LCT mineralisation (including spodumene) at the Dorchap project in north-east Victoria (owned by Dart Mining, ASX: DTM).

Increasing gold production

Karora is focused on increasing gold production to a targeted range of up to 195,000 ounces by 2024 at its integrated Beta Hunt and Higginsville underground operations.

The Higginsville treatment facility is a low-cost 1.6 million tonnes per annum processing plant, which is fed at capacity from both mines.

In July 2022, Karora paid $80 million to acquire the 1.0Mtpa Lakewood gold mill, approximately 60 kilometres from Beta Hunt.

The mill increases the company’s nominal processing capacity to approximately 2.6Mtpa (1.6Mtpa at Higginsville and 1.0Mtpa at Lakewood).